Do you know your insurance score? Most people don’t even realize they have one until they receive an “adverse-action” notice in the mail notifying them that, based on their insurance score, they don’t qualify for the lowest pricing available from their insurance provider.
The adventure begins by following the letter’s instructions to call the listed 1-800 number to receive a free copy of your credit report – which apparently has some effect on the score. You may wait several weeks for a reply, only to be sent a consent form that reads like an identity thief’s dream: the form will request detailed proof of identification, including photocopies of your driver’s license, in addition to your social security number and your insurance information.
If after gathering all of that information you are brave enough to send it off through the mail, the packet that you get back will simply summarize your credit rating, with absolutely no information about your insurance score.
If you persist and contact your insurance company, it will likely tell you that 99% of its clients do not qualify for the company’s lowest rate, and to qualify, your credit must be absolutely perfect. In other words, even if you carry no balances on your credit cards, own your home free and clear, are completely debt free and have a credit rating in the high 700s, you’re still unlikely to have an insurance score that qualifies you for the lowest available insurance rate. So what exactly is this mysterious insurance score, and what exactly is its reason and purpose?
A perfect insurance score, in the eyes of an insurance company, represents a client with the lowest possible risk of filing a claim, so – since the probability of filing a claim is based on credit – good credit is the key to a high score. A good credit report can have such a large impact on your insurance premium that you can, for example, have a flawed driving record but good credit and pay less for your car insurance than a driver who has a perfect driving record but bad credit. Do keep in mind, however, that your insurance score is not the only factor that determines your premium (you can ask your insurer for more details on what the other factors are).
Even after finding out about an imperfect insurance score, you may find the effort needed to perfect it is not worth what may amount to relatively small savings in premiums. (Remember, your insurance score is not the sole impact on your premium.)
The use of credit history to determine insurance premiums is quite alarming to many consumers, particularly to those who have never filed an insurance claim but still don’t qualify for the lowest available pricing. Unfortunately, insurance scoring is a standard practice among the ranks of the nation’s largest insurers.
With that in mind, the best way to help keep your insurance premium low is to keep your credit score high. Take the same amount of caution with your credit score as you would with your driving – being responsible with both can save you serious amounts of money in insurance premiums.